FiboGroup Market Analysis 2018

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The gold price has pulled back slightly in today’s trading session after having its best bull run since 2011 and some predict we may not have seen the last of gold’s gains.

After moving sideways for most of November then suddenly dropping at the beginning of December, the precious metal surged to finish off 2017 strongly which continued for the 1st few day’s in 2018.

Three interest rates hikes by the US Federal Reserve last year as well as three more planned hikes this year have not been enough to subdue the gold price and the usual pattern of higher rates, lower gold prices may be falling by the wayside,

“As global complacency over the trajectory of U.S. rates continues to be astoundingly low, precious metals in general should continue to benefit,” said Jeffrey Halley, senior market analyst at Oanda Corp. in Singapore.

Rising tensions in Iran as demonstrators demand the resignation of Iranian Supreme Leader Ayatollah Ali Khamenei after allegations of corruption and mismanagement of the economy has led to the death of more than 20 people and threatens to escalate, as pro government supporters join the protest in a counter demonstration.

This may see gold receive further support as a safe haven until the situation stabilizes which doesn’t look like happening anytime soon.

“We should tap the short term opportunities to go long as gold has crossed $1,300 with a momentum. It may act as a support, while $1,340 could be an immediate resistance level and we might reach $1,400 in the first quarter this year.” said Mark To, head of research at Hong Kong’s Wing Fung Financial Group.

Further evidence of gold’s connection and volatility towards to interest rate hikes in the US will come today with the release of the minutes from the Fed where they are expected to lay out there economic platform moving forward as well as the Non-farm payrolls figure and unemployment rate on Friday.
 

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Gold was strongly rejected at around the $1,320 mark yesterday and looking at the chart we can try to figure out why.

A classical reverse head and shoulders has formed with the first shoulder forming at the beginning of October at $1,263 followed by the head at a similar price towards the end of the month followed by a substantially lower second shoulder at $1,240 in the middle of December.

On the chart we can see that gold climbed $31.68 to form the head part of the pattern which is the basis for profit taking when the neckline was eventually broken and a potential entry point emerged as shown by the blue arrow.

A typical head and shoulders pattern usually runs out of steam after the price has risen after the entry point by the same amount as when the head was being formed which in our case is ($31.68).

The highest price rise currently above the entry point is $31.30 and was probably a major factor in gold finding major resistance in yesterday’s trading.

Although gold is trying to make a comeback today we may also see resistance again at yesterday’s level which means the precious metal may be setting itself up for a trend reversal.
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As was mentioned in yesterday’s report gold would probably run into stiff resistance at $1,320 on the back of a reverse head and shoulders formation with profit taking being the main factor and the same resistance point is holding up again today.

The tense political situation in Iran which had been a major drive-in gold’s gains over the past week has dramatically calmed down in the last 24 hours with the government retaking control of the streets and this may also put pressure on the gold price as investors exit the precious metal as a safe haven.

From the US later today another strong Non-Farm payrolls figure and unemployment rate are expected to hit the market which will keep the US Federal Reserve on track to lift interest rates further and may be the final nail in the coffin for gold’s current bull run.
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The Australian dollar has pulled back in today’s trading session after rising earlier on the back of strong real estate data and according to one of the world’s biggest banks the Aussie has some serious gains in store as the year unfolds.

Local building approvals numbers hit the market today at 11.7 percent against expectations for a figure of -1.3 percent which shows as the New Year gets underway, the housing market in Australia remains solid.

"Leading indicators such as finance for the construction or purchase of new housing continue to point toward further increases in approvals," said Daniel Gradwell, a senior economist at ANZ.

"It seems pretty clear to us that any fears of weaker dwelling construction in 2018 are misplaced." He added.

With such promising numbers, analysts from HSBC bank predict the Reserve Bank of Australia will begin normalizing monetary policy as they did in Europe and Canada last year and the Australian dollar should see similar gains as the Euro or Canadian dollar.

“The ECB’s pivot happened in 2017 as did the Bank of Canada’s. Both the EUR and CAD rallied strongly in response. But these moves are complete and we believe the excitement for 2018 lies elsewhere.” The bank said.

They also noted that the RBA will need to raise interest rates in the first half of the year on the back of strong “GDP, and further tightening in the labor market and an associated pick-up in wages growth”

HSBC expects the Australian dollar to rise around 10 percent from current levels to US84c as the year unfolds.
 

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The British pound has been a trader’s heaven over the last year as the uncertainty of Brexit negotiations has seen the currency swing widely in one direction then the other but some predict the volatility this year will be a lot less and significant swings in the pound won’t be seen until the end of the year.

Now that the first round of Brexit talks between the EU and the UK are out of the way, the second stage which is trade negotiations has begun with the main topic being will Britain remain in the single market or choose hard Brexit and leave the block without a deal.

Negotiations are likely to continue until October until a final decision has been made and in the meantime, the predictions are the pound will remain relatively stable until the deadline approaches.

“Brexit is likely to increasingly become an issue again over the coming days. But in the end the scramble about the start of the second phase of the Brexit negotiations confirmed that the talks will only see a breakthrough when a deadline is approaching and ultimatums are presented,” says Esther Reichelt, an analyst from Commerzbank.

“The next deadline that is currently under discussion is only in October when it is hoped that the parties will have come to an agreement regarding a trade agreement. As little is likely to move on the Brexit front for now, and a further Bank of England rate hike is unlikely to be an issue over the coming months due to the rather weak economic outlook, GBP exchange rates are largely determined by external factors,” he added.

The British pound jumped 10 percent against the US dollar in 2017 but most predict the currency will finish close to current levels against its US counterpart at the end of the year.
 

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The US dollar finished off 2017 mostly weaker against the major currencies despite 3 rate hikes from the US Federal Reserve and although 3 more rate rises are expected this year, some predict the greenback will be in for another disappointing 12 months.

On top of rate hikes, US tax reform, which includes slashing the corporate tax rate to 20 percent was passed by the US congress in December, and was predicted to lend support to the US dollar as companies repatriated their funds back to the mainland for tax savings.

Although there was much hype surrounding the benefits of tax reform there are many unknowns and some see problems down the track as the tax legislation takes hold.

"We still think the dollar is probably going to be relatively soggy, at least against the majors, probably against the emerging economies to a significant degree as well," Jan Hatzius, chief economist at Goldman Sachs, said.

Rumors out of Canada today claim that US President Donald Trump is planning to pull out of NAFTA - the (North American free trade agreement) which some predict will be disastrous for the US dollar.

Inflation will slow which is exactly what the Fed doesn’t want as it may interfere or even force them to cancel their planned rate hikes as prices for many goods rise as the US is forced to look elsewhere to import goods.

"The dollar will suffer against the euro but the market is not really having a clear view on this. The euro is actually down on these headlines. The market is actually so confused about what it means for the global dollar," said Jens Nordvig, CEO of Exante Data.
 

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In the last 2 weeks the gold price has broken through 2 significant resistance points and is now heading for perhaps its most important test, the peak reached in the beginning of September at around $1,350. If we see a break above this point, which is a major physiological level within the next few days there is no reason why gold cant push higher and $1,350 should become the new support level.

A reversal in the next few days should see gold find support at $1,320 which was a previous resistance level.
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The Australian dollar is on track for its 4th straight day of gains today on the back of US dollar weakness and the continuing strength in commodity prices. The currency is now threatening to break through the US80c mark which it hasn’t seen for a while and the potential to run into stiff resistance remains large

A possible government shutdown in the US after senators couldn’t agree on a deal for illegal immigrants currently in the US has taken its toll on the Greenback and caused a selloff with most major currency benefiting including the Aussie dollar.

Australian commodities continue to power ahead including copper, which is the country’s 2nd biggest and has now risen over 10 percent in the last month.

The Australian share market jumped more than 1 percent overnight which was also an additional factor supporting the Australian dollar.

“The AUD has risen alongside its commodity bloc cousins — the Kiwi and CAD — on the back of what has been a solid day of gains for base metals, particularly copper which is up close to 2% today,” noted AxiTrader’s Greg McKenna

“Throw that in with the performance of the basic materials sector on our ASX 200 with a 1.09% gain and the backdrop remains positive for the Aussie.”

The Unemployment rate and Job participation figures due out on Thursday are going to be critically important for the Australian dollar as a good performance may see the RBA rise interest rates in the next few months and will certainly solidify the Aussie’s gains.
 

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The British pound may soon hit $1.40 as expectations grow that a 2nd referendum will be held on whether Britain will remain in the European Union with the chances of a reversal in decision of the previous referendum a distinct possibility.

Many analysts believe that if a second referendum is announced, the pound could rocket upwards from current levels and investors would be wise to hedge themselves against such moves in the sterling.

Further interest rate hikes which are also expected from the Bank of England will also support the pound and on current fundamentals some say the currency is undervalued at the moment.

“Our base case sees GBP/USD meandering in a 1.30-1.40 range in 2018, with EUR/GBP following EUR/USD higher through 0.95. Considerable bad news is already priced in, and Sterling is already ‘cheap’ on most valuation metrics,” notes Olivier Korber, a strategist from Société Générale in Paris

“A GBP/USD fall to the 1.20 low would require, above all else, a stronger Dollar rather than a weaker Sterling alone. We think the chances of a fall that far are about 5%, whereas we see the probability of GBP/USD appreciating through 1.40 at around 15%,” added Korber.

CPI figures released earlier today from the UK hit the market strongly, coming in at 3 percent which is higher than the Bank of England would like to see and raises the possibility the central bank may raise rates again at their board meeting next month to try and keep inflation under control.

Retail sales figures due out later this week are also expected to come in strongly which will only add to the case for a rate hike.
 

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The Euro is taking a breather today after jumping more than 3c against its US counterpart over the last 3 trading sessions and analysts are bitterly divided on how higher the currency can go.

The immediate future with the European currency lies in the hands of the European central bank who are now contemplating tapering off or ending the quantative easing program which has seen billions of Euros pumped into the economy to encourage consumer spending and boost inflation.

The program has had limited success with inflation remaining subdued and consumer pending average at best which has led some board members in the ECB to lobby for a continuation of the stimulus plan in its full content well into 2018.

The same board members seemed resigned to the fact that inflation will remain weak for some time and their attention has turned to wage growth which if happens, may boost consumer confidence along with spending.

“Domestic price pressures, which the ECB has the best chance of being able to influence, are rising only very slowly,” said Jack Allen, European economist at Capital Economics in London.

“The main thing that the ECB is going to be looking out for is signs that wage growth is picking up, and so far those have been completely absent.” He added.

On the other side of the coin the ECB has a dilemma with the current levels of the Euro Against the major currencies, and in particular against the greenback of which it has risen to a 3 year high which among other things is threatening the fragile recovery of European exports as they become too expensive.

The ECB is now faced with a choice to cut back the stimulus plan and risk keeping inflation subdued indefinitely or begin tapering off the program and risk pushing the Euro higher which will be bad all-round for the European economy.
 
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